The current slump in gold prices is taking its toll on Teddy Bear Valley Mines (TBY-T), the 15.35% owner of the Holloway gold mine in northeastern Ontario.
Operated by Battle Mountain Canada (BMC-T), which owns an 84.6% interest, Holloway produced and sold about 15,500 oz. gold at cash production costs of US$270 per oz. in the third quarter of 1997 — significantly less than the production target of 26,000 oz.
The lower-than-expected production and higher-than-expected production costs were, in part, due to lower-than-planned grades and an unexpected mechanical failure at the third-party mill site that handles two-thirds of Holloway’s ore. This mechanical failure has since been rectified, and milling has resumed.
The production shortfalls and reduced revenue brought about by low gold prices and higher-than-projected costs have resulted in a net cash drain for Teddy Bear. The company was unable to cover these expenditures from existing funds, and, as a result, now owes its senior partner about $1.6 million.
Meanwhile, Battle Mountain has since agreed to buy, for the same amount, Teddy Bear’s 40% equity interest in most of the 18 claims that adjoin, or lie close to, the Holloway mine. Teddy Bear will retain a 15% net profits royalty interest in these claims and maintain its current interest in the Holloway mine. The junior plans to use the proceeds to pay back its joint-venture partner.
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